Co-authored by Treading Softly.
From the frosty rain of the north to the sultry showers of the south, the texture of life changes from place to place. This also holds true in the world of market investments, where the same event can yield distinct results depending on the company in question.
When it comes to investing for income, the market offers a unique alternative to the grind of the workforce. Rather than trading time for money, investors can stake their capital in quality companies and reap dividends or interest, bringing a downpour of financial gain without the need for additional toil.
Today, let’s cast a probing eye on two prime picks capable of showering investors with dividends.
Pick #1: GHI – Yield 8.8%
Greystone Housing Impact Investors (GHI) is a partnership that parades a dual strategy.
Its original core business revolves around owning “mortgage revenue bonds” or MRBs. These bonds, fostered by state housing agencies, aim to spur the growth of affordable housing. Notably, the interest from these bonds is federally tax-exempt, a boon that GHI extends to shareholders through its partnership structure.
Additionally, GHI has expanded its scope over the past 5 years by venturing into a Joint Venture (JV) that furnishes capital for the construction of new multi-family housing. The JV spearheads the construction, secures leases, and subsequently offloads the properties to other investors at a profit. This entails beefy yet sporadic returns for GHI.
In a rising interest rate environment, the MRB strategy grapples with slight hits to earnings, while a decline in interest rates would spell a welcome boost.
While MRB investments pose the risk of defaults, these occurrences are infrequent. In the event of a default, GHI can repossess the property, or more commonly, the borrower conveys the deed to GHI instead. For instance, GHI found itself in possession of Suites on Paseo, a 384-bed student housing property in San Diego, California, when the non-profit organization defaulted on a $35 million MRB.
During the global financial crisis, GHI witnessed a surge in defaults but managed to mitigate losses, only paring its distribution by 8%. Thus, despite operating in a real estate sector that was ravaged by the recession, GHI outshone the S&P 500.
The MRB strategy proved to be resilient even in the most challenging times.
Presently, GHI boasts a more diversified revenue stream, courtesy of the Vantage JV that has lately delivered hefty returns. Investors have savored several “special” and “supplemental” distributions. Although GHI had to trim its distribution during the COVID era, it is presently doling out $0.37/quarter, exceeding the 2019 payout. Furthermore, a $0.07 supplemental distribution, payable in units, is on the cards for January. The Q3 earnings report hinted at another $0.07 supplemental distribution earmarked for Q1 2024.
The bulk of these distributions emanate from their JV strategy, illustrated by the sales of properties in JVs during the initial 9 months of 2023.
It’s worth noting that the gains on the sale of $22.7 million vastly surpass the $47 million in proceeds. Nonetheless, this isn’t a swift process; the three properties sold in 2023 were originally embarked upon in 2018-2019.
While COVID threw a spanner in the works for these properties, an investment cycle of 3-5 years from the onset of construction to property sale seems to be the norm.
Per their 10-Q filing, GHI furnishes insights into its current construction pipeline:
